Control and management of a firm partly exercised in India was enough to attract residence under section 4A(b).

Section 4A(b) treated residence of a firm as established where the control and management of its affairs was exercised wholly or partly in India. The presumption arising from resident partners could be displaced only by showing that control lay wholly outside the taxable territories, and the control had to be de facto rather than merely theoretical. On the facts described, correspondence and conduct showed that important business matters were directed from India, including budgets, expenditure, salaries, purchases and distribution of surplus, so partial control in India was enough to attract residence. The partner's instructions were also effective because each partner had a right to participate in the conduct of the business.

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Issues: Whether the assessee firm was resident in the taxable territories under section 4A(b) of the Income-tax Act because the control and management of its affairs was situated wholly or partly in India; and whether the directions issued by one partner could amount to effective control and management within the meaning of that provision.

Analysis: Section 4A(b) raised a rebuttable presumption of residence where the partners were residents in India, and the assessee could displace it only by showing that the control and management of the firm's affairs was situated wholly outside the taxable territories. The controlling and directing power had to be de facto and actually exercised, not merely a theoretical or de jure right. The correspondence and conduct of the partners showed that important matters such as budgets, expenditure, salaries, purchases, packing, gardening and distribution of surplus were being directed from India, even though day-to-day supervision was left to the superintendent in Ceylon. The fact that such control may have been exercised only in part in India was sufficient to attract residence under the section. The further objection based on partnership law failed because every partner had a right to take part in the conduct of business, and there was no basis for holding that the instructions issued by the partner were ineffective.

Conclusion: The assessee was resident in the taxable territories under section 4A(b), and the contention that its affairs were controlled wholly in Ceylon was rejected.

Final Conclusion: The appeal failed, and the assessment of the assessee as a resident firm was upheld.

Ratio Decidendi: For the purpose of section 4A(b), residence is attracted if the control and management of a firm's affairs is exercised in part within the taxable territories; the assessee must prove that such control is situated wholly outside them to escape residence.

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